If you’re majoring in economics, you will likely also need to take a statistics course. One of the trickiest concepts is dealing with conditional probabilities. In most classes, they teach you a fairly complicated equation known as Bayes’ Theorem.

While this isn’t a hard formula to plug values into, it doesn’t give an intuitive understanding of what the conditional probability P(A|B) actually is. Also, think about being a few years out of school – what are the chances you’ll remember Bayes’ Theorem and properly calculate a conditional probability?

Introduction

In this post, I start off explaining the Marginal Rate of Substitution (Sections II-IV). Then, I cover the concept of Marginal Utility (Sections V-VII). In both cases, I start with a story explanation, then give a formal definition, and finally provide some other useful information about the concept. After that, I connect the two concepts (Marginal Utility and Marginal Rate of Substitution) and show how they relate mathematically, first without calculus (Section VIII) and then with calculus (Section IX). Finally, I demonstrate that the Marginal Rate of Substitution has an advantage over Marginal Utility in terms of describing preferences and behavior (Section X), because it is less sensitive to the exact utility function you choose to use.

So you’ve decided to get an advanced degree in economics. Congratulations! You’re well on your way to obtaining one of the most challenging and worthwhile degrees the world has to offer. While economics graduate programs are known for their mathematical rigor, you will be rewarded for your efforts with better job security, autonomy, and intellectual fulfillment. But first you have to be accepted into a program and, depending on the caliber of the school you’re applying to, that’s easier said than done. How might you maximize your chances of being accepted? A simple Google search reveals plenty of information on the subject, but here are four points I think are the most important: